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Protect or perish - it's the quandry for government in a free-trade world

The recent announcement that steel producer Arrium was moving into voluntary administration threw up a number of comments that many of its problems arose from the alleged international “dumping” of steel products by Asian exporters. There is no doubt that a glut of steel production in Asia has created issues for Arrium and for similar local steel producers in the EU and the USA.

However, at the same time that Arrium is experiencing difficulties, the other major Australian steel producer in BlueScope recorded excellent results, which would suggest that foreign competition is not the sole reason for Arrium’s problems.

Still, the media continues to carry regular stories regarding the evils of the foreign supply of goods, jobs and investment allegedly threatening Australian business, ownership and jobs.

This provides a quandry for all levels of government who welcome such foreign involvement and commit to it in free trade agreements (FTA).

It is especially an issue at the federal level in an election year – how to continue to promote the strong free trade agenda while still preserving some level of protection for legitimate local interests which may be “damaged” by that trade.

A brief summary of relevant considerations is set out below:

As tariff rates reduce, then other “non – tariff” barriers become more significant, evidenced by the inclusion of specific provisions in FTA to address such barriers and an increased focus on Investor – State Dispute Settlement (or ISDS) provisions.

There is really no such thing as “total” free trade. There are a wide range of areas where regulation is permitted in the interests of “fair” trade. One example is the WTO agreements on anti-dumping and countervailing which allow governments to create regimes by which local producers can seek the imposition of additional duties on certain imported goods where dumping and subsidies are found to exist and which have caused material injury to the local producers. This is often described as a “trade remedies” regime.

According to our government, our regime is WTO-compliant and “world’s best practice” affording rapid resolution of complaints and flexible remedies. However it is fair to say that both sides of the debate have their own reservations on government claims.

Our trade remedies regime has been subject to significant amendments in the last few years, much of which seems to have been aimed at “closing loopholes” or providing “further protection against unfair competition”. One specific area has been the creation of “anti-circumvention” remedies where certain behaviours deemed by government to have been adopted by exporters and their importers to avoid the effect of trade remedies can be subjected to an investigation and, if found to have occurred, would allow the imposition of additional duties even if the goods in question are not subject to the original trade remedies. A recent example is the imposition of measures on certain steel subject to “slight modification” by the addition of an alloy such as boron so that it is not steel subject of the original trade remedies. Certain steel alloys are now subject to measures.

There has been a continued international move against steel exports from Asia even though it is already a focus here and overseas. The Anti-Dumping Commission has been asked to develop a paper for government on actions by Asian steel exporters which are causing problems in Australia presumably with the intent of creating new measures against those actions and the associated exports. Similar steps are being taken in the US and the EU.

Our Productivity Commission recently completed a review of its findings of a number of years ago into our trade remedies regime. It came to the conclusion that the benefits of protection are outweighed by the costs to consumers and the economy and that our regime is making Australia worse off on a national welfare basis. The response of government is awaited but it is hardly likely to be embraced in an election year even when there is real merit in the changes recommended by the commission.

The trade remedies regime is not the only battleground. Australia has a Tariff Concession Order (TCO) regime which, put simply, is supposed to allow duty-free entry for goods for which there is no local production of “substitutable” goods. However, recent AAT decisions and changes to practice by government agencies have made it more difficult to secure, maintain and use such TCOs. That helps local industries and the outcome is assisted by legislation in a new Customs Amendment Bill which was recently introduced into Parliament.

Our “quarantine” regime is also subject to international pressure. Government maintains that we have a robust and scientifically-based regime yet many of our trade partners see our regime as being unduly restrictive and a “non-tariff barrier” to trade.

Among all of this, there is a task for all Federal political parties in trying to balance legitimate interests which appear to be in direct competition. We crave open markets overseas for our exports of goods and services as well as increased opportunities for outbound and inbound investment. It is hard to reconcile that to a politically expedient desire to close off parts of our economy in a way which is not supported by sound policy. The more open market may be one cause of the “transition” or “restructure” in the economy the subject of extensive current debate. This places a premium on how government can assist those adversely affected, potentially by way of “trade adjustment packages” as in the US. Perhaps the real test of policy in this area is to help those whose lives are affected in the pursuit of trade outcomes of benefit to us all.

A final thought – there is evidence in the US that manufacturing jobs are being reintroduced there, turning back from China and elsewhere in Asia where production has become more expensive and less convenient. Over time there may be a similar turn in the wheel for other economies.

Relevant News Items:

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Andrew has recently been interviewed and quoted in the following Media pieces.